Alibaba's Cloud and AI Business: A Catalyst for Growth

Alibaba is experiencing strong growth in its cloud and AI business, driven by increased demand for AI-powered products and services. The company plans to invest $52.5 billion in cloud and AI infrastructure over the next three years. Alibaba is trading at significantly lower valuation multiples compared to peers and its own historic averages. This growth potential makes it a good investment opportunity.

Alibaba Group Holding (NYSE:BABA) saw its Hong Kong-listed shares jump nearly 19% on Monday, September 1, 2025, as excitement around artificial intelligence (AI) lifted demand for its cloud services [1]. This surge highlights the ongoing impact of the AI boom on the cloud market and the rapid adaptation of tech firms to meet growing demand for AI-powered solutions.

The company reported revenue of RMB247,652 million ($34.6 billion) for the quarter, a 2% increase from a year earlier but slightly below consensus forecasts. However, if sales from divested businesses Sun Art and Intime are excluded, revenue would have grown 10% year-over-year. Investors focused on the strength of Alibaba's cloud division, which posted a 26% sales increase, its best result in several quarters [1, 2].

Management also pointed to triple-digit growth in AI-related products, underscoring how demand for generative AI solutions is fueling momentum. Alibaba has been investing heavily in AI infrastructure and developing its own models, while also selling AI services for its cloud computing unit [2, 3]. The company's cloud growth has been accelerating over the last few quarters, with revenue picking up by an annual 26% in the June quarter [2].

Adding to the story, Alibaba has developed a new chip more advanced than earlier versions. The company had long been one of the largest customers of Nvidia (NASDAQ:NVDA), but U.S. restrictions on advanced chip exports to China have prompted Alibaba and other Chinese firms to accelerate domestic chip innovation [1].

Alibaba's stock is trading at significantly lower valuation multiples compared to peers and its own historic averages, making it an attractive investment opportunity. Based on the one year price targets offered by 37 analysts, the average target price for Alibaba Group Holding Ltd is $158.09 with a high estimate of $186.99 and a low estimate of $129.99. The average target implies an upside of +17.10% from the current price of $135.00 [1].

References:
[1] https://ca.finance.yahoo.com/news/alibaba-stock-jumps-double-digits-121400172.html
[2] https://www.cnbc.com/2025/09/01/alibaba-shares-hong-kong-today.html
[3] https://www.ainvest.com/news/alibaba-ai-driven-cloud-unit-sparks-19-stock-surge-strategic-reassessment-evaluating-long-term-viability-crowded-cloud-market-2509/